Correlation Between Freedom Bank and Chesapeake Energy

Can any of the company-specific risk be diversified away by investing in both Freedom Bank and Chesapeake Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Freedom Bank and Chesapeake Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Freedom Bank of and Chesapeake Energy, you can compare the effects of market volatilities on Freedom Bank and Chesapeake Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Freedom Bank with a short position of Chesapeake Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freedom Bank and Chesapeake Energy.

Diversification Opportunities for Freedom Bank and Chesapeake Energy

0.28

Correlation Coefficient

Freedom Bank  Chesapeake Energy

Modest diversification

The 3 months correlation between Freedom and Chesapeake is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Freedom Bank of and Chesapeake Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Energy and Freedom Bank is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Freedom Bank of are associated (or correlated) with Chesapeake Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Energy has no effect on the direction of Freedom Bank i.e., Freedom Bank and Chesapeake Energy go up and down completely randomly.

Pair Corralation between Freedom Bank and Chesapeake Energy

Given the investment horizon of 90 days Freedom Bank is expected to generate 11.46 times less return on investment than Chesapeake Energy. But when comparing it to its historical volatility, Freedom Bank of is 2.29 times less risky than Chesapeake Energy. It trades about 0.07 of its potential returns per unit of risk. Chesapeake Energy is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  5,684  in Chesapeake Energy on September 15, 2024 and sell it today you would earn a total of  720.00  from holding Chesapeake Energy or generate 12.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	20.31%
Values	Daily Returns

Freedom Bank of  vs.  Chesapeake Energy

Freedom Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Freedom Bank of are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Freedom Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Chesapeake Energy

Risk-Adjusted Performance

0 of 100

Strong

Over the last 90 days Chesapeake Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly uncertain technical and fundamental indicators, Chesapeake Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Freedom Bank and Chesapeake Energy

The main advantage of trading using opposite Freedom Bank and Chesapeake Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freedom Bank position performs unexpectedly, Chesapeake Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Chesapeake Energy will offset losses from the drop in Chesapeake Energy's long position.

The idea behind Freedom Bank of and Chesapeake Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.